Per Statista’s latest figures, the global network marketing business generated a total revenue of over USD 200 billion in 2022. If that’s not fascinating, let us tell you another fact – America witnessed a total of over 19 million new network marketers in 2022.
These numbers shed light on the immense possibilities in network marketing and the bright future course of this industry. It’s the unprecedented growth of the network marketing sector that attracts tons of people to try their luck in the industry.
But, what network marketing actually entails? How does it work?
We are going to explain everything in layman’s terms so that you understand it inside out.
Network Marketing – A Basic Overview
Network marketing, also known as MLM, is a unique business model that leverages the power of the collective efforts of multiple people. These people are connected by a network that governs how these people will be rewarded for their business efforts.
And what do these people do?
Network marketing companies often include a product line typically (but limited) in the health or wellness industry. These companies hire individuals to sell their products, but here’s a catch – these individuals can also hire other people to compound the sales efforts and for that they receive rewards.
This way network marketing companies are able to build a large network and with the collective efforts of members can achieve massive sales numbers.
Network Marketing Glossary
Network Marketing Glossary is long but here are the essential terms you must know to get the gist of the industry;
- Sponsors – The person who recruits or refers members to the network.
- Recruitment – Bringing new members to the marketing team and organization.
- Upline – Members who act as sponsors and refer members to the network are called upline.
- Downline – The individuals that distributors recruit in the network.
- Compensation Plan – The framework that defines how members will be paid in this business.
- Commissions – It’s what members and distributors make for their sales and recruitment efforts.
- Pyramid Scheme – An illegal practice that solely focuses on recruitment without legitimate products or services.
Types Of Network Marketing Models
Contrary to popular belief, network marketing is a multifaceted model and includes different modes of business. Let’s explore the different types of network marketing business;
- Single-Level Network Marketing – It’s the most ancient form of marketing – the good old door-to-door direct interaction. Individuals associated with this form of network marketing make commissions from their direct sales. Most affiliate businesses work on this model. There may not be any levels but members could receive commissions for referring other members.
- Two-Level Network Marketing – Next comes the two-tier marketing, it is close to the modern network marketing business but only constitutes two levels. Members make sales and earn commissions. Likewise, they recruit new members up to two levels and receive rewards for their recruitment efforts too. It’s more lucrative than single-tier plans because it offers indirect earning opportunities in the form of referral commissions.
- Multi-Level Network Marketing – It’s the true form of network marketing and the core model that involves multiple times of salespeople connected via a network. To effectively arrange members and handle commissions and payouts, companies adopt different compensation plans (more on that later). But the basic idea is the same – members earn commissions from direct sales as well as referral commissions for their recruitment efforts.
What are Compensation Plans – The Engine of Network Marketing
Network Marketing may seem a promising and lucrative business model, but there’s an inherent challenge; how to manage the large swath of members or distributors?
How to decide where they will be placed in the network, how many levels the network can have, and what commission and bonuses each member receives?
That’s where the network marketing compensation plans enter. These plans are a set of rules that define the entire structure of the MLM network.
It’s what powers the entire marketing environment and helps companies handle the MLM processes.
Now, compensation palm comes in many flavors. Here are some examples;
- Binary Plan – The binary MLM plan allows two legs or downlines for each distributor. Commissions are based on downline recruitment as well as direct sales.
- Unilevel Plan – In Unilevel, there’s only a single level. However, distributors can theoretically add an unlimited number of members to their front line.
- Matrix Plan – In the Matrix plan, the width and depth of the network are fixed. For example, in a 3×5 matrix plan, distributors can add three members in each of the 5 levels.
- Hybrid Plan – Besides the fundamental plans, companies can adopt a hybrid structure. It includes elements of multiple plans to form a custom one better suited to the specific requirements of a network marketing company.
That’s pretty much everything you need to know to get started in the network marketing industry. It’s an intuitive business model that promises quick and lasting success. The primary attraction of marketing is the flexibility it provides to the sales force as well as the earning opportunities it promises. When you do it right and with proper understanding, you are in for significant financial gains. Get going then, Good Luck!